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Before you buy an expensive farewell gift for Craig, consider the fringe benefit tax

by , 26 June 2014
Your employee Craig's leaving to spend more time with his family. He's been with you for ten years and you want to give him something to say goodbye and good luck.

So you hunt high and low. Eventually you find the perfect gift... A new iPad Air that costs R6 499. It's exactly what he needs.

But before you splurge of Craig's gift, consider what you may end up costing him in fringe benefit tax...

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That expensive farewell gift may cost your employee in fringe benefit tax

 
According to the Practical Tax Loose Leaf Service, if you give your employee a gift, farewell or otherwise, it's a taxable fringe benefit.
 
This means, your employee will pay tax on the total value of the gift. As usual this tax is 3.5% of the total value.
 
This mean Craig will have to pay 3.5% of the R6 499. So on Craig's last payslip, he'll see an extra fringe benefit tax amount of R227.46.
 
Here you have to weight it up. Will your employee be happy to pay that additional tax? If you're not sure it's better to ask him. If you know he really wants this gift (such as the iPad) he'll probably be thrilled to pay R227.46 instead of R6 499.
 
Just remember, there's a big difference between an employee gift and an award.
 

Long-service awards are very different to employee gifts when it comes to fringe benefit tax

 
Let's say Craig had been with you for 15 years and you want to give him a long-service award. This can be an asset or a service of up to R5 000. Any amount over that will be a fringe benefit.
 
So if you bought Craig the iPad in this situation, Craig will pay tax on the extra R1 499 or R52.46 extra tax.
 
There you have it: Remember these gift tax rules before you start buying your employees expensive business gifts or awards. 
 
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